Gannett’s announcement yesterday that its ReachLocal division has acquired SweetIQ really pissed me off in that the day after Yext’s* IPO I had a great conversation with a Local vet where I predicted that the success of the IPO would set off a wave a M&A in the Local Marketing Tech sector and damned if I wasn’t going to write an all-knowing post asap so I could look like a genius when it happened.
Thanks to my endless capacity for procrastination Mohannad, Mike & crew have beaten me to the punch (congrats to them btw). But that’s not going to stop me from trying to change the timeline. So here goes (in handy ordered list format to trigger Instant Answers!):
How Will The Yext IPO Affect The Local Search Industry?
- Post-IPO, Yext is now worth over $1 billion
- The day of the IPO Yext’s CEO, Howard Lerman, went on the record that this is a “winner take all market” and that Yext will be using the IPO proceeds for sales and marketing, which basically translates to “we’re going to buy market share”. This strikes me as a Bezos-like strategy and if Lerman and crew can keep up the momentum, I think the market will reward them**.
- So now we’ve got a bunch of Yext competitors (Brandify, Location3, SIM Partners, Moz, etc.) plus a bunch of Local Marketing Tech start-ups plus a bunch of big players (YP co’s, Big Media Co’s, CMRs etc.) sitting on the sidelines watching Yext get bigger and thinking “That could be me!”.
- But the problem is that Yext now has an extra $100MM+ to buy market share and keep investing in tech and customer service. Most of Yext’s direct competitors are not nearly as well-funded. Neither are most of the other start-ups that play in the space. For years, “Local” has been a tough sell for investors. But now these players will need capital to compete.
- This now becomes the case for consolidation. If Yext is worth $1B with almost 1MM locations, a roll-up of 500K locations could be worth >$500MM, particularly if it is indeed a winner take all market. So little guys see the value of merging (1+1+1=$500MM) and big guys who both need a solution and need a growth story see the value of acquisition.
Update: Looks like Gannett just proved the theory by snapping up SweetIQ!
* Full Disclosure: Yext is a LSG client and we own some Yext stock
** So we may be totally trying to manipulate the stock price here